BoG head wants bad bank and ESM credit line

BoG head wants bad bank and ESM credit line

Bank of Greece Governor Yannis Stournaras on Monday stressed the need to seek and activate instruments such as a bad bank, as the so-called Hercules Asset Protection Scheme (HAPS) is considered insufficient, while he also recommended taking recourse to the credit line of the European Stability Mechanism (ESM).

The central banker addressed the parliamentary committee that voted on the renewal of his mandate for another six years, with the votes of New Democracy and Movement for Change, but expressed his disagreement with the position of Deputy Finance Minister Giorgos Zavvos that there is still time to assess the course of the implementation of HAPS.

“The Hercules plan certainly continues but is not enough. We need more instruments. If we wait to see it will be too late, as the margin will be too small. We will therefore prepare from now, put it on the table and let the government decide. We need to go and negotiate together at the European Union, many things are changing, this is a great opportunity. Even the bad bank is not enough, there is more,” said Stournaras.

The central banker stressed the significance of the credit line using the example of the credit line offered in 2015: “A credit line is not a bailout memorandum. Greece is under enhanced surveillance. They would not have asked us for anything more than they ask for now, and we would benefit from interest of 1.5%, instead of 4.5%, so we would have far more fiscal space and a much smaller debt. Even now I will advise the government to resort to the ESM; this is not a memorandum. We should make the most of every drop of zero interest that is available to us,” Stournaras stated.

Regarding the economic situation due to the pandemic, Stournaras stressed several times that “it is impossible to make any forecasts” and that, “as long as there is no vaccine or medicine, we can only work on scenarios. The Bank of Greece has a range of forecasts from -4.5% to 9.5% for 2020. The baseline scenario is for -6% and a rebound of 5.5% in 2021,” he said.

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